Background
National Railway Equipment (NRE) engaged rail carriers Evansville Western Railway (EVWR) and CSX Transportation to ship four newly rebuilt locomotives from Mount Vernon, Illinois to Wilmington, North Carolina for export. EVWR transported the locomotives from Mount Vernon to Evansville; CSX carried them from Evansville to Wilmington. During Hurricane Florence, the locomotives derailed near Lilesville, North Carolina and were destroyed. NRE’s insurer, Certain Underwriters at Lloyd’s, paid the claim under NRE’s insurance policy.
Lloyd’s, as NRE’s subrogee, sued EVWR and CSX under the Carmack Amendment to recover the full value of the destroyed locomotives. The carriers invoked liability limitations contained in their publicly available price lists: EVWR capped liability at $25,000 per locomotive; CSX at $10,000 per locomotive. NRE’s logistics manager, Jay Smith, had repeatedly used both carriers over seventeen years, typically selecting the lower shipping rates that included these liability caps because NRE maintained its own insurance coverage.
The district court granted summary judgment to EVWR and the jury returned a verdict for CSX. Lloyd’s appealed, arguing the carriers failed to provide proper notice of liability limitations and that the Carmack Amendment requires explicit language in bills of lading to enforce rate-based caps.
The Court’s Holding
The Seventh Circuit affirmed, holding that the liability limitations were valid and enforceable. The court distinguished the case from ABB Inc. v. CSX Transportation, 721 F.3d 135 (4th Cir. 2013), on which Lloyd’s relied. In ABB, the shipper had repeatedly requested rate information that went unanswered, was unaware of the carrier’s price list, and received no reference to rate authority in the bill of lading. Here, by contrast, Smith had actual knowledge of the carriers’ published rates and deliberately selected the lower-cost rates with limited liability coverage based on that knowledge and NRE’s decision to self-insure.
Under the Carmack Amendment, a carrier may limit liability if it: (1) provides the shipper a reasonable opportunity to choose between liability levels; (2) obtains the shipper’s agreement; and (3) issues a bill of lading before shipment. The court found all three elements satisfied. Although the bills of lading listed only the Standard Transportation Commodity (STC) Code 3741110, the court applied standard contract interpretation principles and determined the code was ambiguous on its face. However, the carriers’ course of dealing with NRE—Smith’s seventeen years of contracting, his consistent selection of lower rates with known liability caps, and his familiarity with the carriers’ rate structures—constituted uncontested extrinsic evidence that proved the parties’ intent. As for EVWR, summary judgment was proper because the evidence was undisputed. As for CSX, the jury’s verdict was rational because a fact-finder could reasonably find the same agreement based on the trial evidence.
Key Takeaways
- A bill of lading need not expressly state liability caps if it references the rate authority (price list code) and the shipper had actual knowledge and prior course of dealing establishing the parties’ intent.
- Shippers who knowingly select lower shipping rates with associated liability limitations are bound by those caps even if they later dispute them through subrogation insurers.
- Course of dealing—a shipper’s repeated pattern of contracting on the same terms over many years—is admissible extrinsic evidence to interpret ambiguous contractual language under federal common law principles.
- The Carmack Amendment’s requirement for “written agreement” limiting liability is satisfied through reference to public price lists when combined with evidence the shipper had notice and deliberately chose lower rates.
Why It Matters
This decision clarifies the enforceability of liability limitations in interstate rail shipping and provides guidance to carriers, shippers, and their insurers about risk allocation. Shippers cannot blindside carriers with full-value claims after knowingly selecting limited-liability rates because their insurers were available to cover the full loss. The decision limits the impact of ABB and reinforces that where a shipper has actual knowledge, familiarity with rate structures, and a longstanding course of dealing with a carrier, the Carmack Amendment’s written-agreement requirement is satisfied even without express language in individual bills of lading. Insurance companies pursuing subrogation claims should expect courts to enforce contractual liability caps where the insured shipper made conscious, informed rate elections.